Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 207

A new clerk in the managerial accounting department applied the high-low method and computed the difference between the high and low levels of maintenance costs. Which type of maintenance costs did the clerk determine?

Answer options

• A. Fixed maintenance costs.
• B. Variable maintenance costs.
• C. Mixed maintenance costs.
• D. Indirect maintenance costs.

Correct answer: B

Explanation

The high-low method is used to separate fixed and variable costs by analyzing the highest and lowest activity levels. The clerk identified variable maintenance costs, which change with the level of activity. Fixed, mixed, and indirect maintenance costs do not solely fluctuate based on activity levels in the same manner as variable costs.